Gold Deposit Scheme was first announced by Arun Jaitely in his Budget 2015 speech. The broad idea is to encourage everyone to deposit there idle gold in banks, which in turn can be loaned to jewelers or used for other useful purpose.
This would be win-win for all the participants as the depositor would be paid interest, jewelers can directly get gold loaned from banks and India can save a lot of foreign reserves it spends in importing gold.
As of now, the Gold Deposit Scheme has been approved by cabinet meeting chaired by Prime Minister Narendra Modi. It would still be 1-2 months when the final scheme is unveiled.
Depositors would first need to take their Gold to the approved collection centers, which would verify the purity and take deposit of the gold.
After the consent of the customer, the collection centers would send the gold to refineries to melt it.
Collection Centers would issue certificate for the gold deposited which would be taken to bank to open Gold Savings Account, which would be denominated in grams of gold.
The refineries can store the gold on behalf of banks for mutually decided fee. There would be no charge to customers for this.
Also read: Sovereign Gold Bond Scheme
Jewelers can open Gold Metal Loan Account, denominated in grams of gold with the bank and borrow physical gold.
The bank would pay interest to depositors depending on duration of deposit while the Jewelers would pay interest to the bank for borrowing.
Below are some Salient Features of the Scheme:
This is not the first attempt of Gold Monetization. It was also launched in 1999 but the minimum deposit was 500 grams and the interest rate was in the range of 0.75-1%. The scheme did not take off due to the low interest rate on offer.
Also Read: Five Signs of Purity for Gold Jewelry
There are still a lot of details awaited and the final decision to invest or not would be based on that. But as of today I see the following issues:
Also Read: Gold Price in India – 40 Years History
The success of the scheme depends on the interest rates offered. Until it’s aggressive, small depositors would stay away.
Would you invest in this Gold Deposit Scheme?
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Thanks Amit
Thks for your kind advice, Sir.
I have 2 querries relating to Gold Deposit Scheme
Firstly, where I would be getting the list of Centres for this scheme
And further, they have mentioned that the redemption for medium and long term would be in cash only.... I want to know whether the redemption would be as per the privailing rate at that point of time OR as per the current valuation of the gold.
Hope you can help to sort out my querries.
Jayesh - The scheme is not launched formally so we still need to wait for clarity. We still have to wait for center's list.
As redemption are concerned it would be based on the gold prices prevailing at the time of redemption because the account would be denominated in gold in grams, so what you would be encashing is gold.
Amit when you think the formal announcement of the scheme will take place? Also, I found this link from SBI about the Gold Deposit Scheme https://www.sbi.co.in/portal/web/personal-banking/gold-deposit-scheme-gds , I guess this is the old version?
Thank you in advance.
I think it's going to take atleast a month for formal launch of Gold Schemes. Yes the above link is for the old Gold Deposit Scheme version.
This is a very good piece of information you have shared on Gold Deposit Scheme. I have been wondering how banks intend to make money and now I understand.
Correct me if I am wrong, but banks will take gold from us and give it either to RBI or lend it to people and pocket the interest margin (gold lending rates - gold deposit rates). Hope my understanding is correct.
Thanks for a very informative post.
Yes Subhodeep that's my understanding too about the Gold Deposit Scheme. Let's wait for the formal announcement of the scheme and then we can dig deeper!